No More Learning

^ Nor is there need in the present connection for much more. The chief interest centers in the bearing such power has on the policies of looser types of business organization now growing with such amazing speed in numbers, influence, and range of interests throughout the capitalistic world. Similarly, pres- ent attention focuses on the activities of what might be called inter- mediate, or perhaps better, transitional, forms of collusion com- monly known as cartels, rings, pools, syndicates, and the like. Some writers, notably Germans following in the path blazed by Lief- mann, have devoted a great deal of attention to the monopoly features, trends, or results of these contractual and semicontractual devices for exercising controls similar to those long employed by several of the corporate giants. This latter interest is growing rap- idly, particularly in America, under the stimulus of a vigorous revival of antitrust prosecutions inaugurated by Jackson and Arnold. But here again we shall be concerned less with the tech- niques employed or the precise results of market, price, and pro- duction manipulation and more with the changes that have taken place in the structure, functioning, and effective powers of these bodies, changes which enable them to be used for effectuating some degree of uniform and monopoly-oriented policies throughout the economic system as a whole.
All of which is to say that our attention must here be focused primarily on the confederations and Spitzenverbdnde. It is now an indisputable fact that centralized business policies are directed by corporate giants which supply the Spitzenverbdnde with effective leadership. Increasingly, these policies cluster around and bear upon the fundamental sanctions in which are enmeshed the insti- tutional taproots for the capitalistic system as a whole; and, increas- ingly, monopoly-oriented pressures applied by the combines and cartels take on meaning as they are analyzed in this context, and lose significance--if they do not, in fact, become at times wholly inexplicable--when taken separately and in isolation therefrom. "People of the same trade seldom meet together, even for merri- ment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. " Thus
3 In this chapter, consequently, direct relationships between big business and various types of government regulatory, investigational, and taxing authorities are being deliberately ignored. They will be taken up in the following chapter.
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observed the wily Adam Smith, and the observation is as true today as when first uttered. But what happens to the quality and the objectives of such conspiracies when they are not only actively encouraged by the trend of leading opinion throughout both busi- ness and governmental circles, but also when they are centrally directed by huge combines which Smith would have assumed, out of hand, to be monsters of willful, capricious, and dangerous power?
In other words, the crux of the matter lies not in the absolute number, nor in the underlying structure, nor even in the rate of growth in these several nuclei of collusive practices, as such; rather the problem is how far these are more or less consciously being arranged by experienced and compactly organized groups in pat- terns designed to promote the continued functioning of this cumu- latively anticompetitive type of business system as a whole. It is not true, to repeat familiar warnings, that there are no important counter- or cross-currents working against the spread of collusive practices; but we shall deal in the following pages with the domi- nant not the recessive characteristics, with those which are con- vergent, mutually reinforcing and additive, not with those which cancel each other or which are absorbed in rear guard action.
Not, again, that the pattern is uniform in all respects, from one industry, or industrial area, or country, to another. Even the scat- tered and unsatisfactory data available to the interested reader should quickly put that question to rest. But just as when, despite infinite variations in individual members, the biologist recognizes that the species, sui generis^ still exists with wholly distinctive struc- tural and pathological characteristics which are determinate for the life cycles of every single member, so here there is a basic same- ness in purpose, a general uniformity of direction-impulse, an archetypal pattern of actual or projected controls which underlie the manifolds of variation in every major and minor country or- ganized on a capitalistic footing.
With attention focused, then, on policies, let us consider the more significant changes that bear most directly upon the nature, blending, configuration, and quality of the programs of the leading confederational groupings.
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CHANGES UNDERLYING POLICY-FORMULATION OF THE CORPORATE GIANTS
In the first place, the more recent history of each major capi- talistic country shows clearly that there is no tendency for the com- bination movement as such to disappear, or perhaps even to slow down. No doubts on this score are permitted by a careful or even a casual examination of the data from the famous Pujo Investiga- tion down through the numerous chronicles of great American fortunes; of the records of the merger and combination movement during the World War and after; of the material published by Attorney General Robert Jackson when Commissioner of the Bureau of Internal Revenue; or of the data submitted by Thorp of Dun and Bradstreet before the opening meetings of the Tem- porary National Economic Committee; and of the Anti-Trust Division of the Department of Justice thereafter. A like story comes out of the investigations of the Balfour Committee, and the studies of Levy, Lucas, and others for England. Similarly for pre-Nazi Germany, as shown by the voluminous reports of the Enqueteausschuss,^ and for post-Nazi Germany by the extraordi- narily compact but exhaustive summary of Dr. Keiser. ^ Carl Schmidt has recently summarized the record of concentration in Fascist Italy, confirming thereby statements repeatedly made in the official Italian literature. (R) The same picture holds for France, and in an even more pronounced fashion for Japan, as set forth in the official published data.
4 As shown particularly in the reports dealing with the coal, iron and steel, heavy chemicals, and machine industries. See also various issues of Die Wirtschaftskurve through the twenties.
5 Dr. Reiser thinks there may be some tendency in the future for combination to slow down, though such a forecast cannot be read directly from the record to date.
6 Carl T. Schmidt, "Joint-Stock Enterprises in Italy," American Economic Review, XXX (March, 1940), pp. 82-86; see also various annual reports of the Confederation of Fascist Industrialists. At the 1928 meeting of the National Association of Manu- facturers, Miss Elizabeth Humes, Assistant Trade Commissioner in Rome of the United States Department of Commerce, reported that "Following in the footsteps of Germany, Mussolini's government is encouraging industrial amalgamations. To this end, taxation on industrial mergers has been abolished. The outstanding in- dustries of the country, including the automobile, the rayon, the cotton, the chemi- cal, the iron and steel industries are all in process of absorbing the smaller concerns and concentrating the buying, manufacturing and distributing branches in the hands of a few powerful corporations. " Proceedings of the 34th Annual Meeting (Oct. , 1929), pp. 381-84.
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These records of concentration do not necessarily show increased social concentration of either wealth or income. Such may very well be taking place, but they relate primarily to three phenomena: (a) growth in the relative importance of the corporate form of or- ganization (this differs from the case in Germany, as indicated on p. 40); (b) increase in the relative size of the larger concerns; and (c) a continuation of the process of absorption of, or morganatic alliance with, smaller and competing enterprises through merger, branch and affiliate status, minority shareholdings, and so forth.
In the second place, there is to be found within all these coun- tries the process termed by Berle and Means as the "splitting of the property atom. " Ownership is cumulatively being separated from management and control, just as previously the laborer was sepa- rated from ownership. But the matter does not come to rest there. Although the owners of corporate securities are steadily drifting into the status of a rentier class ^--formally, in the totalitarian
7 A number of writers (e. g. , Joan Robinson, Essays in the Theory of Employment, New York, 1937) habitually refer to holders of corporate securities as a "rentier class. " In testimony given by representatives of the big corporations of the German heavy industries before the Enquete Ausschuss, bitter complaint against the de- mands of stockholders for higher and higher dividends was frequently followed by proposals for fixing maximum and minimum dividend disbursements (commonly called "stabilization of dividends") which could be required of management in ex- change for non-interference by management in the flow when earned. Numerous American companies have advocated, and a few have experimented with, schemes of this sort. Of perhaps even greater significance is the growing importance in the investment markets of insurance companies, investment trusts, estates handled in trust, university and other special endowments for research, charitable, or other purposes (hospitals, dinics, etc. )--all of which have a much greater interest in regu- larity and reliability of return, than in the making of speculative gains. The pressures they exert, the influences they represent, and the policies they favor all restrict in- terest in management to--the while heavily emphasizing--safe, regular, conserva- tive return. We have here a certain institutionalization of the rentier-ownership- status and its appropriate mentality which, operating directly within the inner circles of private ownership, promises to become the rule and not the exception. In Japan a similar effect is achieved by the common practice of the general investing public of putting their money in savings accounts, and not in industrial securities. The banks then invest the funds in industrial, or commercial enterprises affiliated--more often than not--directly with them. Much the same appears to be the case in Italy.
M. Keynes, The General Theory of Employment, Interest and Money (London, 1936), p. 221, that the rentier class will, or should be allowed to, disappear as interest rates decline to zero, is bound to run into cumula- tively more determined opposition. As with Richard Jones's noted reply to Ricardo's theory of no rent land, given these powerfully organized groups with so definite and critical an interest, a regular surplus will be had whether it is earned or not! See TNEC Monograph No. 29, The Distribution of Ownership in the 200 Largest Non- Financial Corporations, particularly the detailed analysis of the twenty largest hold-
ings in each corporation in Appendix X, pp. 623-1439.
Thus the suggestion made by
J.
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countries ^ and de facto in the liberal-capitalistic--the changed status is no longer traceable entirely either to reduction of equity rights through stock and debenture reclassifications or to mere blocked holdings strategically placed at the head of a control pyra- mid such as the holding company. In the huge corporate complexes of all major capitalistic countries there are growing up inner blocs of bureaucratically self-perpetuating interests; these blocs may have next to no ownership stakes in the vast properties, which neverthe- less they are able to manipulate, through the exigencies of special knowledge, outside contacts, inside personal or committee com- pacts, or other methods of acquiring strategic position. ^ The in- fluence of the purse (banking and finance) has long been recognized in the management of corporate affairs. But in recent years the powers of strategically interlocking legal, accounting, manage- ment engineering,^^ and other special "competence" and contact groups have grown step by step with--and sometimes follow more or less closely the lines of--increasing functionalization of duties
and offices. This is, in turn, a by-product of increase in the size, complexity, and range of corporate interests. ^^
The net effect is not only that the "atom of property" is split, but also that ownership is, in a sense, being "set aside. " The limits of property holdings, as determined by the fictions of legally cir- cumscribed, corporate and quasi-corporate ownership rights, no longer define the membership of, nor restrain closely the strategic massing of power by, closely cooperating inter- and intra-corporate
8 Most clearly in Germany where disbursements have been limited to 6%--in a few cases to 8%--irrespective of amounts earned. Simultaneously stock- and bondholders have lost practically all ownership or contingent property rights.
9 Interesting in this connection are the data tabulated by Robert A. Gordon, show- ing the remarkably low percentage stockholdings of management in a sample of 155 large corporations. "Ownership by Management and Control Groups in the Large Corporations," Quarterly Journal of Economics (May, 1938), pp. 371, 378, 381. Most recent and most reliable are the data of the TNEC Monograph, No. 29, The Distribu- tion of Ownership, p. 104.
10 An interesting example is offered by Thurman Arnold of how a group of ef- ficiency engineers, having practically no ownership rights in the properties in ques- tion, managed to obtain control of almost the whole of the paper-box industry. The Bottlenecks of Business, pp. 181-82. See also TNEC Monograph No. 29, Appendices VI and VII, pp. 357-558.
11 See, in particular, the data on concentration in the National Resources Com- mittee, The Structure of the American Economy; see also TNEC Monographs No. 11, Bureaucracy and Trusteeship in Large Corporations, Chapter VI, and No. 27, The Structure of Industry, Parts V and VI.
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cliques. There has grown up a sort of inner-council condottiere, whose members are no longer constrained by the changing location of their own property holdings or those of others within or without the expanding corporate frontiers. So far as these inner governing cliques are concerned, one by one all the old ownership frontiers are being abandoned, and power flows out from the inner sancta like water through a shattered system of dykes. The corporation, as Sombart has pointed out at great length, is enabled to amass and extend holdings without limit; but in pursuit of effective power the Realpolitik of corporate direction, having once sprung the old restraints of ownership, now enables management to stride afield in a handsome pair of Seven-League Boots.
No better evidence of how this change takes place can be sub- mitted, in the third place, than is to be found in examination of the bewildering array of devices, some already in use and others newly forged, for creating effective strategic alliances amongst the major corporate groups. A useful illustration is the growing mo- nopoly of patents. ^2 This is employed as a springboard for en- hancing market, price, production, capacity, and numerous other controls which greatly transcend the normal limits and cut in a thousand ways athwart the lines of ordinary corporate power. Such controls may be effected in a number of ways. One method results in drawing the giants closer together at the top of the corporate
12 The American Telephone and Telegraph Co. controls 15,000 patents; the Gen- eral Electric Co. between 8,000 and 9,000. See, Arnold, Bottlenecks of Business, p. 27. A report of the ^Patent Office notes an increase in the number of patents granted a small percentage of concerns from 1900 on: "The greatest number of patents re- ceived by any corporation in 1936, was by the General Electric Company, with 476.
lit also received the greatest number in 1935, with 521, and even in 1900, it was then at the top of the list of recipients of U. S. patents, having received in that year, 100 patents. Corporations that received more than 100 patents in 1936, are: General Electric Co. , 476; Radio Corporation of America, 364; DuPont Company, 346; Gen- eral Motors Corp. , 263; W^estinghouse Electric and Mfg. Co. , 248; Bell Telephone Laboratories, Inc. , 236; United Shoe Machinery Corp. , 189; General Aniline Works, Inc. , 152; Westinghouse Air Brake Co. , 136; I. G. Farbenindustrie Aktiengesellschaft, 132; American Telephone and Telegraph Co. , 110; Celanese Corp. of America, 102. " In the same year, "15 corporations received from 50 to 100 patents each; 50 corpora- tions received from 25 to 50 patents each; and 132 corporations received 10 to 25 patents each [the number of patents granted in 1900 was 60% of the number granted in 1936] . . . and these constituted only 2% of the total number of patents granted that year. " John Boyle, Jr. , "Corporation Patent Holdings," Journal of the Patent Office Society, XIX (Sept. , 1937), No. 9, pp. 698-99. See also TNEC Monograph No. 31, Patents and Free Enterprise.
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pyramids. Thus the establishment of the Ethyl Corporation brought together certain special interests of Standard Oil of New Jersey, General Motors, and Du Pont. The patents underlying RCA came largely from Westinghouse, General Electric, and Bell Telephone, and the subsequent segregation was more a matter of convenience than of separation through incompatibility. The Car- boloy Company, manufacturing hard-metal compounds for cutting dies in machine-tool construction, brought together Krupp and General Electric into a close price-fixing and market-allocation agreement. The two huge German electric-manufacturing con- cerns, the Siemens and A. E. G. groups, pooled their incandescent lamp patents to form Osram, as did General Electric and Westing- house in the United States to establish Mazda. Zeiss and Bausch and Lomb; the great German dye trust, I. G. Farbenindustrie A. G. , and Standard Oil of New Jersey; the armaments producers of Germany, Italy, France, England, and the United States; these and many others have been similarly brought together in close working agree- ments resulting in price, market, production, and other controls. ^^
A number of other well-known factors contribute to this result, among them control over technical innovations due to ownership of large research facilities,^* interlocking directorates, "communi- ties of interest," common dependence upon the same financial in- terests. But coincident with the processes of drawing together at the top is the spread downward and outward of power and influ- ence to reach the small concerns--a process which springs from the same ability to manipulate resources and controls by inner cliques operating amongst the giants. The licensing agreement of the
13 A particularly interesting example of how research and patent exchange has brought industries together is shown on an "Electronic's Chart of the Sound Picture Industry of the World," reproduced as a frontispiece by Toulmin, Trade Agree- ments and the Anti-Trust Laws, which shows how Westinghouse, General Electric, and the American Telephone and Telegraph Co. via RCA have been brought into close working arrangements with British, French, German, and Dutch producers of film apparatus on the one hand, and systems of movie distribution on the other. See also TNEC Monograph No. 21, Competition and Monopoly in American Industry.
14 In some cases--the great German dye trust is an outstanding example--pooling of research facilities played a major role in the grouping of the chemical industry first into a series of interlocking cartels, then into a "community of interests," and finally into formal corporate consolidation. Arnold, Bottlenecks of Business, cites a number of examples where through leverages of a similar character large concerns have been able to absorb the small.
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ECONOMIC POLICIES
Hartford-Empire, Owens-Illinois group in the glass-container in- dustry is symptomatic. Here the group was able to decide who should produce what types of glass containers, in what amounts, and also in what territories they might sell, and at what prices. ^^ Similar controls are exercised by the Ethyl Corporation, the large movie-producing companies (block-booking), Osram, Montecatini, Schneider-Creusot, Krupp, Vickers, Imperial Chemicals, and many others. The net effect of such controls is to place the small, so-called "independent" producer or distributor ^(R) in a position of permanent vassalage to the giants. The various reports of the Tem- porary National Economic Committee, the Senate Committee on Patent Pooling, and the Nye Munitions Committee show how far and how exacting this type of control over the small businessman is becoming. The field of distribution offers many similar exam- ples. ^^ In Japan the small are likened to "sub-contractors" to the large. But the picture is reproduced wherever the giant enterprises have struck root, and wherever the forms and fictions of law ^^ make possible establishment of such coercive controls by the large over the small.
A fourth development is the rise to dominating positions within the larger corporate complexes of closely interlinked families and blocked familial and interfamilial interests. "America's 60 Fami-
15 See TNEC Hearings, Part 2, "Patents, Automobile Industry, Glass Container Industry. "
16 An excellent example is provided by the case of the McKesson-Robbins fiasco, in which it developed that through a system of job-lot selling on long-run contracts the firm had been able to force increasing numbers of retail drug outlets into a position of almost complete financial dependence on it. It has been estimated that, in the city of San Francisco, calling in of outstanding obligations to the defunct con- cern would immediately have bankrupted about 40% of all the retail drug outlets in the city.
17 See, in particular, the Hearings on the Robinson-Patman Act, the recommenda- tions of the TNEC for repeal of the Miller-Tydings Act in their final Report and Recommendations, and the Anti-Trust indictments of the Department of Justice against the Borden and National Dairies Companies; also literature on the agita- tion in Germany against the department store combines of Wertheim, Leonard Tiets, Karstadt's, Bata (stores serving as outlet for the manufacturing plants of Bata).
18 Thurman Arnold has intimated in a number of speeches that the net effect of attempts to enforce the Sherman Anti-Trust Act has been only to streamline, and, in some respects, render more circuitous--but not seriously to inhibit the growth of--"combinations in restraint of trade. " A like fate seems to have befallen the famous "law against the abuse of economic power" passed in Germany in 1923. See Neumann, Behemoth, pp. 16, 238, 261-63.
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lies ^(R) are paralleled by the French "200," ^"^ the aristocracy of British "Cousinhood," ^i the Junker-Industrial baronry of Nazi Germany,22 the Zaibatsu of Japan, and the aristocratic latifondi- industrial princelings of the Rome-Milan-Turin "Axis. " The fam- ily pattern of the Zaibatsu, outlined in the chapter on Japan is merely the simplest and most obvious of these family complexes. But like the House of Mitsui, the group de Wendel,^^ the spreading empires of the DuPonts and the Rockefellers, the ramifications of the houses of Buccleuch and Beaufort, or that of Krupp, Flick, Rochling, Quandt in Germany,^* these other ownership complexes are being built up and consolidated by intermarriage, trust segre- gations and administrations, club, fraternal, clique, and "group" (De Wendel, Gillet, Krupp, DuPont, etc. ) interlinkages which cumulatively take on a consanguinous, familial, patriarchal, "dy- nastic" character, and which show next to no "areal" identification with properties bounded by formal corporate holdings, or with national or even the usual types of business frontiers. "Influence," "alliances," "mutual interests," "nepotism," "sinecure," "pull" and the like move into the center of the picture.
19 See in particular, Ferdinand Lundberg, America's 60 Families (New York, 1957). Large family-controlled corporations in America, cited in a recent study of the na- tion's 200 largest non-financial corporations made by the Federal Income Tax Divi- sion, included the Ford family with $624,975,000 in the Ford Co. , the DuPont family with $573,690,000 holdings in E. I. DuPont and the U. S. Rubber Co. , The Rocke- feller family with $396,583,000 in the Standard Oil Cos. of New Jersey, Indiana, and California and Socony Vacuum Oil Co. , the Mellon family with $390,000,000 in Gulf Oil, Alcoa and Koppers, the McCormick family with $111,102,000 in the International Harvester Co. , the Hartford family with $105,702,000 in the A. and P. Co. , the Hark- ness family with $104,891,000 in the Standard Oil Cos. of New Jersey, Indiana and California and Socony Vacuum Oil Co. , the Duke family with $89,455,000 in Duke Power, Alcoa, and Liggett and Myers, the Pew family with $76,628,000 in Sun Oil, the Pitcairn family with $65,576,000 in Pittsburgh Glass, the Clark family with $57,215,000 in Singers, the Reynolds family with $54,766,000 in Reynolds Tobacco, and the Kress family with $50,044,000 in Kress. New York Times, Oct. 16, 1940.
See also TNEC Monograph No. 29, pp. 1505-28.
20 See "Blum Grapples with the 200 Families" by P. June 14, 1936.
21 Haxey, Tory M. P.
22 See Brandt, op. cit. ; Kolnai, The War against the West, pp. 322-93. An interesting example of family influence in a single industry, the German machine making in- dustry, is provided by a recent article by Dr. Otto Suhr, 'Tamilientradition im Ma- chinenbau," Zeitschrift fUr Betriebswirtschaft, Feb. , 1939.
23 See Louis R. Launay, De Wendel (Vaucresson, 1938). 24 See Neumann, op. cit. , pp. 288-96.
J.
Philip, New York Times,
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A fifth factor is found in the fact that leadership within the circle of the giants seems to be shifting steadily towards the heavy and the "laboratory-baby" industries. The heavy industries occupied a key position in the producers'-goods industries during the period of rapid expansion of industrial apparatus in the North Atlantic industrial nucleus before 1914, and were intimately connected with war and armaments programs from that time on; for these reasons they have long occupied positions of commanding impor- tance in the field of corporate concentration. The "laboratory babies" include electric manufactures and power, rubber, auto- mobiles, airplanes, radio, aluminum, petroleum, movie produc- tion, telephone and telegraph, rayon, plastics, heavy chemicals, and so on. These industries have either been launched on a large-scale basis or have quickly and by forced-draft growth become gigantic manufacturing and marketing systems early in their careers; ^^ most of them are less than fifty years old; all are dominated by huge, closely interlocking corporate complexes. The significance of this leadership lies in the following facts.
1. Metals, fuels, and heavy chemicals have, since 1914, been in- creasingly dependent (secularly) upon war and armaments prepara- tions for full prosperity. The principal exceptions are to be found in the United States during the middle and late twenties, and in the Ruhr and Rhine during the rehabilitation and "rationaliza- tion" period (1924-29). After 1914 elsewhere, and in the United States after 1939, war and armaments programs have comprised so large a part of total demand that once the adjustments in capacity have been made to meet these markets permanently, the failure of the demand looms as a major and irreparable catastrophe not only to individual industries, but also to the entirety of the industrial complexes of which they are the gravitational centers.
2. The heavy and armaments industries have, with the advance of science and technology, largely grown together "organically" at the manufacturing base. So close have become the materials,
25 Many older, empirically grounded industries have long since become dependent upon laboratory research. Steel-making is itself a conspicuous example: continuous heat-processing, vertical integration from the ores and fuels on through to the finished plates or tubes, etc. , by-product utilization (ammonia, tars, and allied dis- tillates from by-product coke ovens), increasing use of alloys such as molybdenum, magnesium, nickel,--all these require heavier and more consistent reliance on laboratory experimentation and control.
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processing, and in part, the product interdependencies among cer- tain industries--coal, coal by-products, heavy industrial chemicals, war munitions, steel, steel-alloy, light metals (in particular alumi- num and magnesium), armaments, shipbuilding, machine and machine-tool building, and numerous others that are closely al- lied--that these industries form a series of complexes wherein only the fictions of corporate groupings survive (as in the railroad sys- tems of the United States and England) to confute the impression that one is dealing here with a single technological network.
3. No clear line separates these heavy-armament industries from the other "laboratory babies. " Neither technologically nor in terms of the configuration of corporate interests can a sharp line of de- marcation be drawn in any major industrial country between heavy and light chemicals; between machine industries manufacturing for peace and for war; between explosives and gas manufacture and the making of rayon, nylon, and plastics; between the manufacture of electrical apparatus and the alloy and light metals manufactures on the one hand and the automobile, rubber, airplane, engineer- ing, and similar industries on the other. If space were available, illustrations both from the technological and the corporate sides could be multiplied almost endlessly from the different countries we have cited. And the over-all movement through modern indus- try in general is clearly in this direction.
Firms working in these fields are thus drawn together by com- mon problems of scientific research, of manufacturing, and of man- agement and control. 2^ Access to the field is increasingly shut off by monopoly rights over laboratories, by exclusive and patent- controlled processes and products, by systems of pooling of patents within narrower and narrower circles, by high costs of initial capi- tal requirements, the inability to command a market without grant of special privileges by concerns already existing in the industry, but above all, by the nature of the industrial complex the new- comer must be adjusted to at the outset. In short, all the necessary conditions exist for expansion of supermonopoly powers through-
out these complexes as well as throughout the individual corpora-
26 Factors of a management and service character have played a very important role in the combination movement in public utilities in general. See James C. Bon- bright and Gardiner C. Means, The Holding Company (New York, 1932), pp. 176-87, 312-15-
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tions comprising them. On the other hand, in so far as they are dependent upon war or upon public-works programs, they are faced with the further monopoly-encouraging conditions of "mo- nopsony"--single buyers. Probably half the demand of Kuhlmann, Schneider-Creusot, Montecatini, Vickers, Krupp, Skoda, special- ized branches of Bethlehem, DuPont, the Zaihatsu, and of the various aircraft companies falls into this class, whether war is being waged or not. In wartime, some such proportion (or a higher one) becomes valid for the bulk of other companies falling into the same classifications. As will be shown later, war or a status of suspended belligerency is swiftly becoming the normal, not the exceptional state of contemporary affairs. And the existence of a single buyer almost invariably promotes combination against sellers--in war- time the rule almost becomes a maxim. ^^
Two other factors deserve mention in this catalogue of forces which cumulatively enhance the relative importance of the giants in the larger coordination movement. They need not detain us long, since both are obvious and well known. The first is the fact that the interlinkages between the great industrial combines and the central financial and banking institutions have generally be- come so close that the division between them is functional rather than corporate. The greatest industrial concerns in Japan and Ger- many are the principal bankers. The Credit Lyonnais is probably the most powerful single force in French industry. Equally close are the tie-ups between the great central banks and the huge industrial and transport combines in Italy, England, and the United States. ^^ The finance committee with its various banking and other finan- cial connections tends to come to the fore within the industrial
27 Once capacity has been adjusted to war demands, the conditions of peace mean excess capacity and unemployment; if the war realignment is structurally far- reaching, this excess can probably only be taken up by huge public-works programs --thus perpetuating into peacetimes, in proportion to the excess, the monopoly- promoting conditions of monopsony. All intercartel agreements, of course, have a like effect, and war tends greatly to accelerate such compacts.
28 See Bonbright and Means, op. cit. , for a description of how the three great in- vestment banking houses of Morgan, Drexel, and Bonbright were enabled by a combination of well-placed minority holdings (in companies whose stocks were widely held by the general public), financial power, and their enormous influence and prestige, to control almost the whole of the American electric utility industry. For comparable data, see Liefmann, Beteiligungs- und Finanzierungsgesellschaften, covering English, French, German, American, Swiss, Belgian, and other financing holding-company, trust, investment trust, and similar forms of business organization.
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237
control pyramids; simultaneously blocks of special industrial in- terests tend to dominate the policies of the great banking houses at the center of the financial webs of control upon which the entire business community is dependent. ^^
There can be no question but that such interconnections and interdependencies in the more important capitalistic countries enable the giant concerns to exercise undue leverage over the small businessman. The attempt by various national governments to provide special banking facilities for easy and cheap credit to little business shows how acute the problem has become. ^"
But there is one final sphere in which the power of the giants over smaller concerns is practically without recourse from any angle--that of international trade. The foreign banking, indus- trial, and commercial systems of concessions, branches, affiliates, minority holdings, communities of interest, interlocking director- ates, compacts and agreements of the several great national com- bines are too well known to require elaboration here. ^^ It only needs to be pointed out that, in the principal lines of manufacture and sale, no small enterprise or grouping of small enterprises has any chance of breaking into foreign markets against the opposition of the giants acting in concert, without allying themselves with or selling through one of these or a group of them.
And on this score, there is much less of a tendency for the giants
29 Particularly true in Germany where a number of the leading industrial giants have established their own so-called "House banks. " Somewhat similar is the case of the Rockefeller, DuPont, and Mellon controlled banks in the United States.
30 This subject largely dominated the hearings, plans, and negotiations of Secre- tary Roper, inaugurated in 1937 to solve the problems of the "little business man," and became a theme song for the crop of little businessmen's associations which sprang up shortly thereafter. See, e. g. , the platforms of the Smaller Business Asso- ciation and the American Federation of Little Business. The various governmentally controlled banks working with the Japanese National Planning Council and the Capital Adjustment Commission appear to have had the little businessman in mind for special attention. Similar agencies have been proposed or established in both Italy and Germany, though results in salvage of the little businessman's fortunes do not seem very striking in such quarters.
31 Two very interesting recent examples are provided by exposes of the armament industry's ramifications and the international network of the Aluminum Company of America. See H. C. Engelbrecht and F. C. Hanighen, Merchants of Death (New York, 1934), largely based on data from the Nye Investigation of the munitions industry; and see also proceedings in equity in the District Court of the United States for the Southern District of New York, Brief for the United States in Support of a Pre- liminary Finding of Conspiracy among Alcoa, Aluminum Limited and the Foreign
Aluminum Companies (June 1, 1939).
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to help their own small competing nationals in foreign markets than for them to divide by special agreement domestic and foreign markets amongst the huge combines dominant in the several na- tional territories. ^^ Thus Krupp, Vickers and Schneider-Creusot got together to divide and allocate markets for arms and munitions. General Electric and Krupp divide the markets for bar-metal com- pounds, the German Dye Trust and Standard Oil markets for hy- drogenated oil products, and so ad infinitum. In these agreements markets are increasingly divided along the following lines: (a) the domestic market is reserved for each, or some specific portion of it is allotted to domestic manufacture (e. g. , the Bausch and Lomb- Zeiss agreements on optical glass; General Electric and foreign pro- ducers on incandescent lamps); (b) the adjoining space or conti- nental area is reserved for each or a combination of each concept of Grossraumwirtschaft (e. g. , agreements of DuPont and Imperial Chemicals on munitions; Alcoa and the Aluminum Cartel); and (c) "competing" territories are handled increasingly in such a fashion that either the price structures agreed upon will not be disturbed through ''open competition," or dumping is resorted to on a bitterly cutthroat basis. If the former, it is usually because patents are so pooled or agreements so drawn that "outsiders" can- not possibly break in; and if the latter, then because no small con- cern unaided and by itself can possibly meet the pace once the struggle reaches a sanguinary stage. ^^
32 "One case concerns an American optical company, which, during the last 5 years, has manufactured, distributed, and sold approximately 50% of all U. S. military optical instruments. These have included periscopes, range finders, altimeters, bomb sights, torpedo directors, etc. This corporation arranged with a leading German corporation, operating in the same field, to divide the world market; to limit sales to allotted territory; and to fix and maintain prices and terms of sale. The German and American corporations agreed to conceal the existence of the contract from third parties, and the latter corporation agreed to pay to the other a royalty equal to a percentage of the gross sales price of each military optical instrument sold, in- cluding equipment sold to the United States Government. " Resolution by Senator Wheeler calling for an Investigation of Interstate Commerce Conditions Affecting National Defense, Sept. 18, 1940.
S3 It is noteworthy that none of the small American business groups has been able to see any other solution to its problems except to pool resources and behave in imitation of those against whom they are organizing--collusively with respect not to the large concerns or trade associations of the large, but with respect to that por- tion of the public which it may be able to call its own. Conversely, one will search through the records of monopolistic practices of the large combines in vain for instances where the little businessman was left unscathed, even when he was not the direct object of attack.
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Such a classification of the reasons for the growing relative im- portance of the giants in the formulation of business policies does not by any manner of means exhaust the possible listing. But it may possibly cover the most important casbs. A little careful inspection of the voluminous records on which these generalizations are based will show convincing evidence not only that these trends are con- temporaneous and mutually reinforcing, but also that no competi- tive restraints or combination of competitive restraints can any longer be expected to stop or seriously to inhibit the vaulting powers of these great interlinked aggregations of large-scale cor- porate enterprise. Government may be able to do so if, when, and where it is able to shake itself free from direct or indirect manipu- lation by the powers it seeks to control. But so far as it fails to do so, by so much the mantle of political authority is simply shifted de facto from its former popular, or constitutional, base to another which stems from the inner councils of these huge corporate com- plexes. ^* But of that, more later.
CHANGES UNDERLYING POLICY-FORMULATION WITHIN THE CARTELS
The term "cartel" has lost its old precision. Once it stood simply for a contractual relationship, usually enforceable at law, between a number of enterprises which had banded themselves together for a fixed period of time in order the better to regulate prices, or production, or marketing terms, conditions and areas, or some other feature of business relating to a single or a closely related group of commodities produced by its members. Now that the term has come into general circulation, it has come to mean any sort of compact--whether recognized and enforceable by law or not--between two or more concerns for the purpose of manipu- lating one or more of the elements of conducting business to the advantage of the participating parties. Even in the classical home of the cartel, Germany, it has long been difficult to distinguish be-
34 The comment of the Wall Street Journal, April 28, 1941, on recent developments in Japanese "Co-prosperity sphere" plans is illuminating: "Recent strengthening of the power of business circles in the Konoye Cabinet will not mean abandonment of Japan's plans for economic regimentation and southward expansion. A good many leading 'liberal' businessmen, including the newly-appointed economic coordinator, Masatsune Ogura, whom some industrialists refer to as Japan's Goring, are toying with the idea of totalitarianism in Japan, only a totalitarianism run by businessmen. "
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tween the practices of cartels and those of many of the more power- ful trade associations such as the Federation of German Machine Building Associations (VDMA) or the Association of German Iron and Steel Industrialists. British writers use the terms "trade as- sociations" and "cartels" more or less interchangeably. In France the members of the Comite des Forges have entered into many dif- ferent "comptoirs," but what of the Comite des Forges itself? Many of its activities have long been of a distinctly cartel-like character. ^^ Thurman Arnold of the Anti-Trust Division uses the term to apply to any American trade association pursuing policies which bind its members to behave non-competitively. ^^
More than mere loose thinking is involved here. Actually, a vast and complicated system of collusive practices has come into being since the First World War having the effect of cartel agreements; it appears under a multiplicity of guises and is given effect through a wide variety of associational forms. To the economist the realities of practice, not the fictions of law or the accidents of terminology, must occupy the center of the stage. And from this point of view, it is probably not too far from the truth to say that practically all of the swiftly proliferating meshwork of trade associations found in all capitalistic countries of the world perform one or more func- tions of a distinctly cartel-like character. Adam Smith's dictum ap- plies to the usual, not the exceptional case. And even those which are economically functionless seem on investigation to be going through motions, like the wind-up of the pitcher before delivery of the ball, prefatory to more forceful and purposive action.
A couple of examples will serve to show how pervasive cartel- like policies have become. In Germany, none of the laws commonly called "Cartel Laws" apply singly and solely to collusive groups formally recognized in law as Cartels. For example, the famous "Law Against the Abuse of Economic Power" ("Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen"), passed in 1923, ap- plied to "Syndicates, Cartels, Conventions and Similar Agree-
35 See, in particular, Bezard-Faglas, Les Syndicats patronaux de I'industrie metal- lurgique en France.
86 Compare Arnold, op. cit. with the report on cartels prepared by Theodore Kreps and presented before the Temporary National Economic Committee. The Kreps view, which seems to have shared in the thinking of Mr. Leon Henderson of the TNEC, inclines quite favorably towards good cartels, while frowning--not very severely--at the bad.
J.
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ments. " The text of the law (as of those which followed in July, 1930, August, 1930, August, 1931, December, 1931, and July, 1933) refers but incidentally to those combinations as "Cartels. " The last-named law (1933), "Concerning the Forming of Compulsory Cartels," places the cartel at the center of the discussion only be- cause it refers to all agreements entered into under authority of pre-existing laws by the generic term "cartel. " ^^ The Cartel Bu- reau (Kartellstelle) of the old National Federation of German In- dustry (Reichsverband der deutschen Industrie) handled cartel problems as specialized activities of its members, separately grouped in the Federation by industry and trade categories and organized as trade associations. The left hand took care of cartel problems; the right hand managed the larger interests into which
cartel practices were dovetailed. ^^
There can be no question but that the National Federation of
German Industry and all of its member bodies were engaged di- rectly or indirectly in the exercise of cartel controls. And, as has been pointed out elsewhere,^^ the organizational network of pre- Nazi Germany, brought together and centralized in the Spitzen- verhdnde, was well-nigh all-inclusive by the time the new regime took over. Not far behind Germany of that date stand England, France,*? and the United States of the present. Fascist Italy and post-Nazi Germany ^^ have seen the web of cartel-like controls still further extended.
37 For texts of these laws, and an exhaustive commentary on the history of cartel policy in post-war Germany, see Callman, op. cit.
38 See Max Metzner, Kartelle und Kartellpolitik (Berlin, 1926), and Wagenfiihr, Kartelle in Deutschland.
39 See Brady, The Rationalization Movement in German Industry (Berkeley, Calif. , 1933), Chapter V, and The Spirit and Structure of German Fascism (New York, 1937), Chapter IX; also, W. F. Bruck, Social and Economic History of Germany from Wil- helm II to Hitler, i888-ip^8 and Franz Neumann, Behemoth.
40 The "new" corporative order recently announced in conquered France seems much less revolutionary when viewed in light of the reorganization of the Con- federation Gen^rale du Patronat Fran^ais, following conclusion of the Matignon Agreement in 1936, with the Confederation Gdnerale du Travail. The new group- ings, the new tone, and the new policies which followed the Agreement were en- tirely in keeping with Nazi and Fascist patterns.
41 "Only transitorily and superficially did the beginnings of the new relationship between the state and the economy appear hostile to cartels. The development of National Socialist cartel policies during the last year shows a replacement of rigorous cartel supervision by policies designed to guide the economy and regularize markets with and through the cartels. This is readily shown in the law and in legal inter-
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A second example may be taken from the building industry in the United States. According to Assistant Attorney General Ar-
*2
nold:
Producers of building materials have fixed prices either by private arrangements or as the principal activity of trade associations. Owners of patents on building materials have used them to establish restrictive structures of price control, control of sales methods, and limits upon the quantities sold. . . . Some of these patent holders have taken ad- vantage of their control over patented products to require their licen- sees to give them control of unpatented products also. By the use of basing point systems and zone price systems, various building materials industries have established by formula a rigid structure of uniform prices throughout the country; and in some of these industries such price formulas have encouraged the wasteful shipment of products to great distances. The use of joint selling agencies has been another means by which some of these groups have undertaken to maintain their prices. In some groups the various producers have subscribed to the theory that every member of the industry should have a definite share of what- ever business there is to be done, and that no concern should try to get more than its share by price competition.
Supplementing these various devices for keeping the prices of build- ing materials high have been a series of other devices used to discipline competitors who are unwilling to play ball. In one industry the means is cutting off the supply of raw materials. In another it is starting a series of harassing lawsuits. In a third it is the harassment of distributors by selling through the seller's own factory branches at prices lower than those at which the distributor is permitted to resell. In a fourth it is the maintenance of orthodox channels of distribution by concerted refusal to sell to groups representing new methods of sale or new price policies.
But this is only the beginning. In addition, "there is a growing concentration of control in many of these industries" through combination, merger, communities of interest, and the like. This holds for the distribution of building materials, and down through all the various systems of contracting and subcontracting charac- teristics of the industry. *^ Nor are the data local; the situation is ap-
pretation of the law. " Fritz Ruble, "Kartellpolitik und Weltbewerbeordnung," Zeitschrift fiir Betriebswirtschaft, 1938, pp. 337-49- See also Bruck, op. cit. , pp. 222-26 and, particularly, Neumann, op. cit. , pp. 261-73.
42 In an address before the National Association of Purchasing Agents at the Fairmont Hotel, San Francisco, California, May 22, 1939. Department of Justice news release.
43 In some of these efforts the trade unions are alleged to have cooperated freely.
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parently typical of the building industry throughout the entire country. ** Yet the situation within this industry is in no wise unique. In approaching the problem of cartel-like controls within the California food industries, for example, the Anti-Trust Divi- sion is faced with a situation so far advanced along the road of what the London Economist calls "feudalistic cartel controls" *^ that prosecution is faced with only one alternative to passing up the whole matter as beyond redemption, and that is to issue a blanket indictment against the entire industry. *^ Similarly with the petro- leum, movie-production, electric household-appliance, and milk industries,*^ and many if not almost all of the other important indus- trial groupings of America.